Jan 05, 2015

    Investors eye data and banks' moves

    FOLLOWING a week of thin trading over the Christmas and New Year holiday period, investors are set to get down to business this week.

    They are expected to focus on manufacturing data from Singapore and Hong Kong, as well as on China trade data for indications on the health of the world's second-largest economy.

    The strength of Asia's manufacturing economy - a key component of economic strength - will be in focus this week with Singapore today posting its Purchasing Managers' Index (PMI) for last month, and Hong Kong releasing its PMI tomorrow.

    The two reports follow survey results last week showing weak factory activity in China last month, as the country's manufacturers fight rising costs and softening demand.

    China's official PMI slipped to 50.1 last month from November's 50.3, with weaker-than-expected oil-demand growth in China last year contributing to the price collapse.

    "Expectations are for Singapore's manufacturing activity to be weak because of the slowdown in GDP (gross domestic product) growth, and high labour costs driving up costs for manufacturers. The United States and euro zone haven't recovered fast enough to help our exports," remisier Alvin Yong said.

    Investors are also eyeing China trade figures for last month, with analysts forecasting China's foreign trade surplus may have narrowed with growth in exports outweighed by a sharper slide in imports. Indeed, some expect that China's economic growth for last year may undershoot the government's 7.5 per cent target, marking the weakest expansion in more than two decades.

    "But more bad news from China and the euro zone could boost expectations of more stimulus, which is good for our local market," Mr Yong said. "We are hoping for a rally here in the first three to five working days, as that could set the tone for the trading year ahead."

    The benchmark Straits Times Index ended the week 16.91 points, or 0.5 per cent, higher at 3,370.59.

    On Wednesday, the US Federal Reserve is expected to release minutes of the Federal Open Market Committee meeting on Dec 16 and 17, which may shed light on the timing of the first interest rate increase since 2006. Last month, the committee had said it would be "patient" on the timing of an increase, replacing an earlier pledge to keep borrowing costs low for a "considerable time".

    More indications on what the Fed intends to do about interest rates will come from the US employment report for last month, out on Friday.

    A Bloomberg survey as of Dec 30 showed that the jobless rate probably declined last month to a more than six-year low, as employers added almost 250,000 jobs during the month to cap the strongest year for payroll growth since 1999.

    On Thursday, the Bank of England's Monetary Policy Committee is expected to announce a decision on whether to raise the benchmark interest rate from a record-low 0.5 per cent.

    While two officials have voted in recent months to raise borrowing costs, citing the potential for pay pressures to build, most economists do not see a rate increase until the third quarter this year.

    A report last week showed that British manufacturing growth unexpectedly slowed last month, reducing pressure on the Bank of England to raise interest rates.